Foreign Relations of the United States, 1958–1960, Volume V, Microfiche Supplement, American Republics

UR–16. Despatch from the Ambassador in Uruguay (Woodward) to the Department of State¹

No. 155.

Montevideo, August 26, 1960

SUBJECT

• Current Political and Economic Situation in Uruguay

Summary

Relations between the Uruguayan Government and the United States Government are at present very cooperative. This is important to the United States because Uruguay still possesses special international prestige. And Uruguayan governmental cooperation is well supported by Uruguayan public opinion. There is increasing awareness in Uruguay of the danger of international communism; Uruguayans consider Uruguay impregnable to communism; but communist and Cuban propaganda is persistent, and communist influence in Uruguay is strong among a minority of the labor movement and a minority of the teachers.

The present Uruguayan Administration is definitely more conservative than the preceding one. It is slowly stabilizing the economic and monetary situation of the country, slowly restoring agricultural productivity and slowly rectifying the imbalance in international trade. Whether it will succeed in doing this sufficiently to win again in the November 1962 elections is a moot point and may depend in part upon economic development projects in which foreign credit assistance may be an important factor. Also, economic progress in the next few years depends in large part upon greater agricultural productivity (and luck with world prices) and the agricultural potential in Uruguay appears rather limited.

Uruguay has had an interesting and unusual economic and social development in the past but has tended to stagnate somewhat because of inefficient use of manpower, lack of leadership, and lack of productivity to pay the bill for social services. Although “welfare-state” services and public ownership of utilities and industries have been conspicuous, the economy is surprisingly capitalistic and ownership fairly heavily concentrated. While economic stability will probably be achieved and economic activity in the country substantially improved, there is considerable question about the possibility of Uruguay’s being able to equal the future progress of the larger South American countries with more varied resources.

The domestic political prospects are largely conjectural, with no clear indication of outstanding prospective leaders and as yet no basis for predicting which parties may gain more public favor than others. In this state of flux, however, the probabilities of continued orientation of the Government toward the United States and the Western world are good.

Political Relations with the United States

Relations between the Uruguayan Government and the United States are very good to excellent. The present (Blanco) Administration which came into power on March 1, 1959 is thoroughly convinced that international cooperation with the United States and the Western world is advantageous to Uruguay, and the only natural and consistent line for Uruguay to take in view of its own long political and economic traditions. This is a notable improvement over the situation that existed during the preceding (Colorado) Administration. The main segments of both large Uruguayan political parties, as well as the Catholic (Union Civica) party all have extremist fringes that are inclined to be nationalistic and to temporize with communism—in the sense that they tend, in the Cuban style, to sympathize with efforts to improve the living standards of the masses, even at the cost of dictatorship for the proletariat, the subordination of civil liberties, and the ignoring of private (particularly foreign) property rights. But the two main segments of the Blanco party have far smaller such fringes than the List 15 Colorados, the larger of the two main Colorado segments.

The smaller of the two main segments of the Colorado party (List 14) is more moderate in its economic and social views and has been consistently friendly toward the United States for years, as exemplified by the utterances of its newspaper EL DIA. Even the List 15 segment of the Colorado party has been at least as cooperative in its attitude toward the United States since it left office on March 1, 1959 as it was during its own Administration. Evidently, the main body of List 15—except for the extremist fringe—appears as convinced as are the Blanco groups that cooperation with the United States and the Western World is the only natural and consistent line for Uruguay. And even the extremist fringe of List 15 is inclined to admire many aspects of the United States and its policies while likewise taking an interest in other methods of bettering the lot of the masses.

Therefore, the majority of Uruguayan citizens clearly support the attitude of the Uruguayan Administration toward the United States. (Perhaps the most important effect of the visit to Uruguay of President Eisenhower was to precipitate a display of attitudes which showed all Uruguayans vividly that the great majority of themselves approve of the United States and its policies. This, and the converse discovery that militant critics were a small minority, has tended to give many Uruguayans more courage and more conviction and more inclination to align themselves openly with the democratic ideology as symbolized by the United States.)

Successful United States efforts to clear away points of irritation in Uruguayan-U.S. relations, and to develop cooperative programs between the two countries have undoubtedly been a substantial factor in the improvement of relations, although the advent of the Blanco Administration on March 1, 1959 was undoubtedly the most important factor.

Importance to the United States of Good Relations with Uruguay

Although Uruguay does not stand out among other nations as conspicuously as three or four decades ago, it is still especially useful to have Uruguayan support for United States policies and actions. Uruguay’s international reputation as a country of democratic, educated, and liberty-loving people has given Uruguayan attitudes and views more weight at international meetings or in international public discussions than the attitudes and views of any other small country of the Western Hemisphere. Uruguay continues to be the most outstanding small country in the Western Hemisphere in many respects: It has the most firmly-entrenched democratic traditions and institutions, including a permanent Electoral Court to supervise all national elections. It has the most democratic form of Government in the American Republics in that there is the least opportunity for any one man to attain conspicuous authority. It has a practically completely graft-free Government. It has the most complete religious freedom and the most absolute separation of church and State. It has had professional armed services, divorced from participation in politics, for longer than any other Latin American country. It probably has a smaller percentage of illiterates and a larger percentage of newspaper readers than any other Latin American country—with a deeper devotion to all forms of civil liberties.

Uruguayan Attitudes toward Communism and the Soviet Bloc

Those Uruguayans who have been interested in the professed advances of communist States in guaranteeing at least minimum “social security” to their populations are now becoming aware of the ruthless dictatorial and police methods that have been required to do this and of the total immorality of communism whenever this serves communist purposes in relations with countries outside of the Bloc. These Uruguayans are confident that their country is basically impregnable to the dictatorial or police-state ideas of communism. But, since such ideas have begun to take hold in Cuba, their confidence is beginning to be shaken. Many Uruguayans, moreover, have seemed to have an attitude bordering on irresponsibility about the threat of communist infiltration and subversion in democratic and uncommitted countries in other parts of the world. For example, some Uruguayans have not seemed to realize that visits of curiosity to the Soviet Bloc have the effect of subtly enhancing Soviet prestige and lulling gullible peoples in other countries into less concern about the dangers of communist propaganda, infiltration and agitation. It is to be hoped—particularly in view of the developments in Cuba—that such Uruguayans are beginning to understand that any act of theirs which shows intellectual benevolence toward communist countries has the effect of raising communist prestige and endangering other more vulnerable democratic peoples not only on the periphery of the Bloc but even closer to Uruguay.

After completely free political activity since 1920, the Uruguayan Communist Party won 27,000 votes out of one million votes cast in the November 1958 national elections. The most the Communists have ever won was 34,000 in 1946. Uruguayans have not seemed to realize that other poorer and less-educated peoples in other countries would be far more susceptible to communist blandishments if this same degree of freedom of activity were to be permitted.

The steady cumulative effect of news stories and other sources of information has undoubtedly tended to make Uruguayans more realistic, but Communist is persistent and communist influence continues to be strong in Uruguay in a minority of the labor movement and among a minority of the teachers.

Uruguayan Economic Improvement

The present Uruguayan Administration has moved slowly to improve the country’s economic situation. It has succeeded so far in stabilizing the international value of the Uruguayan peso, in taking a major step to eliminate the system of multiple exchange rates with many beneficial results, in coming closer to balancing the budget, in significantly restricting credit, in stopping the drain on the gold balances of the central bank, and in slowing down the increase in the cost of living. A major benefit from the elimination of the system of multiple exchange rates was to place international trade at the beginning of 1960 on a completely multilateral basis and eliminate bilateralism and discrimination. Another benefit was to increase the effective returns from important export products, creating new incentives for additional production. Another benefit to the economy was the elimination of costly subsidies of certain imports, both for consumption and for aid to industry.

The Blanco Administration has shown an admirable steadfastness of purpose in proceeding with steps toward economic stabilization, over the obstacle of much clamor from the Opposition and particularly the Communists and their Socialist allies. Moreover, slow governmental procedures had been made slower by many differences of opinion within the Blanco ranks and by the exceedingly slim Blanco majority in the Legislature—50 out of 99 members in the Chamber of Deputies. Much of the credit for the progress which has been made is due to the Minister of Finance, Contador Juan AZZINI, who has a clear conception of his course, and to the comparative political imperturbability of the two main characters in the nine-man Presidential Council (the National Council of Government), Chairman Benito NARDONE and next year’s Chairman, Victor HAEDO.

The steady inflation that had come about from years of overspending and subsidizing favored urban and industrial elements in the population has had the natural effect of raising living costs in comparison with individual income. After having spent and subsidized for years to perpetuate itself in office, the List 15 Colorado Administration became discredited because the voters began to discover that they had to pay the bill through reduced individual real income. And then, ironically, the one period in which this trend was felt the most keenly was the part of 1959 after the Blanco Administration took over on March 1.

In recent months, wage increases in many industries have been greater than cost-of-living increases, tending partly to restore real income. The Government’s four-year budget is about to be passed by the Legislature with substantial wage increases for Government employees, which anticipate to some extent the fact that increases cannot be made again for four years. A law recently passed modestly increases a large proportion of existing pensions to make income catch up at least in part with increased prices. When these and various other pending adjustments in salaries and wages are made, it is the Government’s intention to adopt a wage policy, that, henceforth, wage increases shall not be larger than increases in the cost-of-living index.

It will remain to be seen whether the Blanco Administration can promote sufficient improvement in the economy of Uruguay before the next national elections in November 1962 to be able to win. This will depend partly upon the success of the Administration in developing sound economic development projects and obtaining the financing for them.

The success of the Blanco Administration will also depend in part upon World demand and prices for wool and beef and upon the increased quantities of these and other products that can be produced in Uruguay. Uruguayan agriculture—particularly the wool industry—was heavily taxed through low exchange rates and therefore low receipts in the multiple exchange-rate system. Agriculture was forced to operate upon such a low-cost basis that large farms became larger with fewer workers, which brought about a decline in total agricultural production and even in the number of individual farm operators. The small farmers were badly squeezed and became the most neglected identifiable segment of the population.

The present Uruguayan Administration represents, in part, a reaction to this situation. The Herrerista Blancos, who now control the Executive branch of the Government, have a preponderance of their supporters in the rural areas and the small towns. And Sr. Benito Nardone, whose Liga Federal or “Ruralists” joined forces with the Herreristas in the last elections, is the spokesman and leader of the small farmers who vigorously protested their lot.

Undoubtedly, considerable improvement can be made in Uruguayan agricultural productivity without increasing costs more than increasing productivity, and this possibility will be enhanced by progress in the science. However, the additional effort and management required on the part of ranchers who have been accustomed to extensive rather than intensive techniques will retard such individuals who do not see much prospect of individual profit—even though the nation as a whole may badly need increased productivity and export trade. Moreover, Uruguay’s natural advantages for beef production are not as great as those of Argentina, and the small size of the country and modest quality of the soil place a natural limitation on the expansion of Uruguay’s agricultural exports.

Uruguay’s Unusual Economic and Social Situation; Future Prospects

Despite a degree of inflation which has increased prices more than it has wages, Uruguay probably still possesses a larger percentage of population who are fed, clothed and sheltered reasonably well than any other Latin American country. An ECLA study showed that, in 1958, about 78% of the Uruguayan population had a productivity of over 400 US$ per capita, which was the highest recorded in Latin America.

Uruguay has long had the international reputation of having the largest proportion of pensioners, the largest variety of other social security services, the largest proportion of Government employees, the most public ownership of utilities and industries, and the most “welfare state” institutions in general of any Latin American country. On a comparative basis, this is probably true. For example, there are about 200,000 pensioners and about 100,000 others who are eligible but who have not been able to obtain pensions as yet because of delays that are fundamentally due to depleted pension funds that have made loans to the Government. There is a system of small “family allowances” which are funded like pensions and supplement wages, and there are unemployment funds. For medical and hospital services, the population is about equally divided between those whose income is low enough to make them eligible for public health services and those who are members of one of the many “mutual” health insurance societies; it is estimated that only about 5% of Uruguayans now depend entirely upon the private direct purchase of medical and hospital services. All of the utilities in the country except the (British-owned) Montevideo gas company are now owned by the Government. And the Government monopolizes petroleum refining, most liquor distilling, a large part of gasoline distribution, a large part of cement manufacturing, fertilizer and chemical manufacturing, fishing and fish distribution, and insurance.

There is very little foreign ownership of industry in Uruguay and the funded foreign debt is well under $100 million USCy.

Despite the reputation of Uruguay, however, the backbone of its economy is private capitalism, ownership is concentrated in a surprisingly small proportion of the population, and the economic and social attitudes of these capitalists are, on the whole, not conspicuously enlightened. About 35% of all the arable land in the country is concentrated in the hands of about 600 families, and the concentration of the ownership of industry is probably about the same. Farm workers average less than $20 USCy, a month plus room and board, and ordinary industrial workers average from $60 to $80 USCy, a month, plus about 20% more from the employer for pension funds and other social security payments.

Also, some of the wealth that has built Montevideo into an impressive city for such a small country has come from persons who have found Uruguay a convenient financial “safe-haven’’ and Uruguayan tax laws have encouraged the establishment of holding companies which have their investments elsewhere. There has also been a considerable tourist business, mostly from Argentina, and a considerable number of political refugees—Argentines and others—have invested in residential and business property in Uruguay.

Along with this situation, there has been an interesting but small-scale development of intellectual and artistic life in Uruguay—which has strangely seemed to parallel the “safe-haven” spirit in a degree of isolationism and an anachronistic clinging by small groups, to outmoded political ideas such as anarchism and early Marxian socialism.

Uruguayan economic and social (and intellectual) development seem largely to have stood still in the past 15 or 20 years, as neighboring countries have developed. This has been partly due to the inefficiency of government operations which have wasted manpower egregiously, with the natural result that the public has had to pay the bill one way or another. Stating this in another way, so much manpower has been wasted that productivity has not been sufficient to pay the bill for goods and services, with the result that they have been paid for by credit expansion and a slow drain on the gold reserves and the resulting inflation which made the public pay.

The present Uruguayan Administration is definitely determined to make the Government and the Government business operations more efficient, and considerable progress will undoubtedly be made in this direction. The amount of progress that will be made, however, is a moot point, since the lack of stimuli to and checks on the Government utility and industrial operations is much less than on private corporations. There is some sentiment among leaders of the present Administration actually favoring the sale to private owners of certain Government business operations, but it is very unlikely that this will be done, even with the least efficient such as the fishing industry. The most that can be expected is that some increase in private enterprise may be encouraged.

The prospects for significant economic progress in Uruguay, once Uruguayan agriculture is brought up to optimum productivity, do not appear to be outstanding. There may, however, be many ways in which Uruguay can profit from closer economic integration with Argentina, and this may offer the promising possibility for real future economic progress. Uruguay has suffered from a lack of products which the Argentines are interested in buying. And the most obvious way in which Uruguayans could profit from an increasingly prosperous Argentina would be to devise every feasible means of attracting larger numbers of Argentine tourists; Argentine tourists already spend a substantial amount every year in Uruguay, and it might be possible for Uruguay to attract large enough numbers in the future to create enough foreign exchange to purchase Uruguayan petroleum needs from Argentina. This exchange of tourist services for petroleum would be greatly facilitated by the existence of a bridge or viaduct between Buenos Aires and Colonia in Uruguay (or a bridge somewhat farther upstream), and the financing of this construction project—a viaduct with a petroleum pipeline attached to it—might therefore be one of the most interesting objects of international financial cooperation to consider with a view to the encouraging and hastening of an inevitable long-term trend in Uruguay an economic development.

This Embassy has hoped that it might be possible for Uruguay to develop highly skilled industries, because there are many very capable Uruguayan craftsmen and mechanics. However, the Embassy is inclined now to estimate that the prospects of the development of truly outstanding industries are rather poor, and the principal hope in this respect is that there may be greater development of the local industries which process Uruguayan raw materials, such as the woolen textile industry.

Attempting to project Uruguayan economic development in line with a realistic estimate of the situation which will probably exist ten years from now, it can be predicted that Uruguayans will be, on the average, only moderately better off than they are at present, and that any difference in their average situation will correlate quite closely with a possibly improved wool market (which, in turn, may be dependent upon new marketing opportunities that may develop in the United States from the Australian-United States conversations which have been recently initiated.)

Here follows a discussion of domestic political trends.

Regardless of domestic political trends in Uruguay, the prospects of continuing cooperative attitudes in relations with the United States and the Western World are good. These prospects could be reduced (1) by our not giving reasonable economic cooperation to Uruguay (2) by our falling behind, as a nation, in the worldwide economic, sociological, ideological and defense contest, or (3) by our departing from the inter- American machinery to take unilateral action in some situation such as in the Cuban case. However, assuming that we will devise increasingly effective means of economic cooperation, that we will continue to make every effort to make inter-American machinery more effective, and that our country will steadily gain in the worldwide contest, I believe we can count on Uruguayan political and ideological support.

Robert F. Woodward

1. Source: Department of State, Central Files, 733.00/8–2660. Limited Official Use.